Pump Up the Prices

NusaBali reports that the incoming regime of Joko Widodo and Jusuf Kalla may increase the cost of subsidized fuel by Rp. 3,000 per liter starting in November 2014. If the price hike is introduced it would bring the price of a liter of premium gas at the pumps to Rp. 9,500 (US$0.80) per liter, while the current price is Rp. 6,500 per liter. The plan to increase the cost of gasoline was disclosed by Luhut Panjaitan, a member of the Presidential transition team during the launching of the book “Outlook Energy Indonesia 2014” in Jakarta.

Panjaitan said the decision to implement the politically volatile decision to increase in price of fuel was taken at a meeting on September 26, 2014 with the President and Vice-president elect. The presidential advisor defended the increase in the price of gasoline, citing the extreme burden of fuel subsidies paid by the government on the State Budget (APBN). The new national leaders will come into office and have to immediately deal with a budget deficit estimated at US$7.2 billion.

The planned increase in the cost of fuel, according to Luhut, will save between US$13-14 billion in State expenditures in the 2015 budget. To prevent an undue burden on the poor, the Joko Widodo presidency will prepare a package of emergency relief amounting to Rp. 5 trillion that will be made available to the poorest members of society in order to alleviate the impact of the fuel price hike. The final decision on the amount of the increase will be taken soon after the new Presidential Cabinet is seated at the end of October.

Most informed observers believe that President Joko Widodo has little choice but to increase the cost of gasoline, addressing an unpopular but necessary political decision sidestepped by his predecessor Susilo Bambang Yudhoyono.